The Blockchain Bubble’s Latest Victim: Digital Cats

Cats helped build the Internet but are having a harder time with blockchain: CryptoKitties, a startup that raised $12 million in March to build out its digital feline project, has hit the skids.

While the median price of a CryptoKitty—a unique digital cat that can be traded on the Ethereum blockchain— reached $41 a few months ago, that figure is now closer to $5. Meanwhile, the transaction volume has fallen more than ten-fold from 1.3 million in December to 115,000 in May.

Those figures, reported by Business Insider and based on blockchain research from Diar and Bloxy, provide grist for those who say the CryptoCurrency craze was just a flash-in-the-pan—notwithstanding the $12 million from bluechip VC firms Andreessen Horowitz and Union Square Ventures.

And while a company based on digital felines may sound frivolous, the fate of CryptoKitties is significant because the firm represented one of the first popular applications of blockchain’s digital ledger technology. Using the Ethereum blockchain, CryptoKitty fans could show they alone controlled a unique crypto asset, which helped inflate the value of the cats—including one that reportedly sold for over $100,000.

Alas, the recent figures suggest the long-term value of CryptoKitties may be closer to that of Beanie Babies than to gold. And according to Diar, the initial appeal of Ethereum collectibles companies may have been overstated to begin with:

“There are currently under 2000 daily active users of all Ethereum based games and the weekly traded volume is approximately $1Mn. It’s not exactly clear whether NFTs were even as popular as originally thought. Venture capital firm Greylock Partners found that even at its peak, CryptoKitties only had about 14,000 daily users.”

Part of the problem may lie in the fact the Ethereum network has struggled to scale, resulting in prohibitive transaction fees when there is an uptick of activity. The scaling problem may be addressed in time but, for now, CryptoKitties founder Bryce Bladon is looking at ways to mitigate the situation and also to find new ways to keep users interested.

“Since launching CryptoKitties and running headfirst into the challenge of scaling, we’ve made numerous product and design decisions to reduce the number of superfluous smart contract interactions,” he told Business Insider. “We’re delivering numerous ways to engage with CryptoKitties outside of buying and breeding them.

CryptoKitties’s troubles also come amid growing evidence that few people are using so-called blockchain’s decentralized applications, known as dApps, and that there is a bubble around blockchain projects in general.

Blockchain enthusiasts are likely to take comfort, however, in the fact it’s still early days for the technology and that, like the Internet before it, there will be many unsuccessful experiments before it becomes mainstream.